Currencies / the accounting equation.

Dave Peticolas
Sun, 01 Oct 2000 14:37:40 -0700

> On Fri, Sep 29, 2000 at 04:50:18PM -0700, Dave Peticolas wrote:
> > I think there is an additional issue for transactions. Consider
> > a transfer between two accounts with the same security (USD).
> > 
> >  	Acct		DR			CR
> >  	bank (USD)	                        USD 100 (? ?)
> >  	cash (USD)	USD 100 (? ?)
> > 
> > Under the current rules of balancing, you can choose any two distinct
> > currencies and any amounts for the two values, and the transaction is
> > in balance with respect to the common currency (USD). This is the case
> > now, but choosing the account also chooses the currency so there is no
> > ambiguity. Should we allow this?
> Should we allow what?  It sounds like you're asking about allowing
> more than two total commodities involved in a transaction, and I think
> the answer is yes.

It's not just that there are more than two total commodities, it's
that I can't understand what the transaction means when the values
are totally unrelated.

> In your example, the splits each state an equivalence by exchange
> between 100 USD and some other amount of some other currency.  Clearly
> there's a difference between the case when the two "mystery
> currencies" are the same, in which case it's possible to detect an
> error condition where the 'values' of the two splits are different,
> and the case where the currencies are different, in which case you
> can't detect an analogous error condition.
> I can't easily explain your example transaction to myself in words.
> For example, to fill in some real values,
>     Acct 		DR			CR
>     bank(USD)    				USD 100 (EUR 105)
>     cash(USD)		USD 100 (GBP 65)
> What would this mean, and how would we know not to take it at face
> value as being balanced?  As far as "meaning", it seems to say "I took
> EUR 105 out of a USD-denominated account, and put it in my pocket as
> 65 GBP (but my cash account is USD-denominated)"

I don't agree. The 'value' side of a split (regardless of whether
currencies are associated with accounts or splits) does not necessarily
refer to a tangible commodity that was exchanged. The tangible commodity
that you are counting is always the security.

To me, the above transaction says "I took $100 out of my bank account
and put it in my cash account. The $100 dollars coming out of my bank
account is worth 105 Euros and the $100 going into the cash account is
worth 65 Pounds."

If you actually received 105 Euros, then you should have transferred it
to an account with a security of Euros.

> I can see the first
> part of that -- say, using a US-bank ATM card in a machine that gives
> Euros -- but I don't understand the debit side.  If one were to
> withdraw EUR and then change them for GBP, I would assume there would
> be two transactions.  So far, it looks like it might be reasonable to
> enforce just 2 currencies.
> What would a multiple-currency money-changing transaction look like?
> i.e.  one where you give the banker USD 100 and ask for EUR 50, GBP
> 25, and the rest in ITL?  Assuming a "tourist" account setup, where
> you have a single Cash account that you keep your records in, maybe
> like:
>    Acct			DR			CR
>    cash(USD)					USD 100 (USD 100)
>    cash(USD)		USD 47 (EUR 50)
>    cash(USD)		USD 35 (GBP 25)
>    cash(USD)		USD 18 (ITL 20,000)

I don't understand this transaction. According to this transaction,
you still have the same number of dollars as you started with in
the cash account.

> Or worse, if you actually accounted for things correctly with a
> different cash account for each currency:
>    Acct			DR			CR
>    USD cash(USD)				USD 100 (USD 100)
>    EUR cash(EUR)	EUR 50 (USD 47)
>    GBP cash(GBP)	GBP 25 (USD 35)
>    ITL cash(ITL)	ITL 20,000 (USD 18)

Now this I understand. You exchanged one commodity for another set
of commodities and tracked how the value in USD is distributed among

I think one of the things that bothers me about the current balancing
rules is that they treat the currency and security as interchangeable,
when they really mean different things.

What if we required transactions to have a common valuation currency?
What if the currency were associated with transactions instead of
splits, and we always balanced with the value?